How to become a Freelancer in 2024? Legal frameworks and preparatory steps

In the dynamic realm of Information Technology, the allure of freelancing has never been more potent. The autonomy to choose projects, flexibility in work hours, and the potential for higher earnings draw many towards this independent career path. However, before diving into the freelance lifestyle, it’s crucial to understand what it entails legally and practically. This article explores whether you’re suited for freelancing, analyses the competition, and delves into the various legal structures available for freelancers in 2024.

Are you cut out for independence?

The transition from a traditional job to freelancing in IT is not merely a career change but a lifestyle shift. It requires self-discipline, adaptability, and a proactive approach to securing projects and managing time. You need to mull over some questions, like:

Do I have the discipline to set and adhere to my work schedule?

Can I effectively manage my projects and deadlines without external supervision?

Am I prepared to handle the administrative and financial aspects of running my own business, such as invoicing, taxes, and insurance?

If you answered Yes to these questions, freelancing might be a suitable path for you.If you’ve answered No to the third question, we’ve got the solution for you at the bottom of the page.
However, success in freelancing also depends on continuous learning and networking to keep up with the latest technologies and industry trends.

Analyse and get information on other freelancers in your field

Before diving into the freelance world, taking the time to closely observe and analyse those who have already carved a niche for themselves in the field can be incredibly insightful. Such an analysis sheds light on the demand for specific IT skills, pinpointing which technologies and areas of expertise are currently in high demand. It also unveils various pricing strategies employed by freelancers, including how they set their rates be it hourly, per project, or on a retainer basis and the billing models they prefer. Additionally, examining the marketing and networking techniques of successful freelancers reveals how they manage to promote their services and attract new clients effectively. Gaining an understanding of these elements not only provides a clearer view of the competitive landscape but also equips you with the knowledge to strategically position yourself in the market, enhancing your chances of success in the freelancing arena.

Exploring the various legal structures for Freelancers in the UK

Choosing the right legal structure in the UK is critical for freelancers. It affects your taxes, liability, and the way you can conduct business. Let’s explore the common legal structures for freelancers in IT:

Contractor

Operating as an independent contractor is the most straightforward way to start freelancing:

⇒ Simplicity: Less paperwork and administrative requirements compared to forming a company.

⇒ Flexibility: Easy to start and stop projects, with minimal legal or financial constraints.

⇒ Direct client relationships: You deal directly with your clients, which can lead to stronger business relationships.

Limited Company (Ltd)

Forming a Limited Company offers freelancers a formal structure that comes with distinct advantages. Firstly, it establishes the company as a separate legal entity, which provides significant financial and legal protection to the freelancer. This separation means that the individual’s personal assets are shielded in case of business liabilities. Secondly, operating as a Limited Company can lead to potential tax planning opportunities and savings, particularly beneficial for individuals with higher earnings. The ability to manage and allocate profits efficiently can result in a more favourable tax scenario compared to other legal structures. Lastly, the formal nature of a Limited Company enhances the freelancer’s credibility in the marketplace. This increased professionalism may not only attract more clients but may also be a requirement for engaging with certain clients who prefer or mandate contracting with formally established entities for contractual reasons. 

Umbrella Company

For individuals prioritising simplicity in their freelancing ventures, partnering with an umbrella company emerges as a highly convenient choice. By aligning with such a company, freelancers effectively gain employee status, which significantly simplifies the complexities surrounding taxes and administrative duties. This arrangement entrusts the umbrella company with the responsibility of managing invoices, taxes, and insurance on behalf of the freelancer, ensuring a hassle-free experience. Despite this shift towards a more structured form of employment, freelancers still retain considerable flexibility in their work, mirroring the independence of traditional freelancing but without the associated administrative burdens. This blend of simplicity, reduced administrative duties, and maintained flexibility makes using an umbrella company an attractive option for freelancers seeking a straightforward approach to their business operations. 

Managing Company

Starting with a managing company, often seen as a hybrid between freelance freedom and corporate structure, offers several additional benefits compared to an Umbrella company:

⇒ Professional image: A company structure might be more appealing to certain clients, projecting a more established business presence.

⇒ Tax efficiency: Opportunities to maximise your tax situation through salary and dividend payments.

⇒ IT Network: Joining a managing company specialising in IT means becoming part of a powerful community that facilitates the exchange of opportunities for projects and training.

⇒ Dedicated Support to boost your career: A dedicated advisor will support you throughout your career, helping you to negotiate your contracts better and assist you in securing the best projects.

A managing company represents the best alternative to the umbrella service today, offering more benefits and personalised support. It is highly considered as the premium version by IT freelancers.

Navigating the path to IT Freelancing: Options and Timelines

Transitioning into a freelance career in the IT and computer science sector involves browsing through various business structures, each with its own setup timeframe. Here’s a breakdown of the timeframes associated with each option:

Independent Contractor

Becoming an independent contractor typically involves the shortest setup time. Generally, it takes anywhere from a few days to a couple of weeks to establish yourself as an independent contractor. This timeframe includes tasks such as registering for any necessary permits or licences, setting up a business bank account, and organising your invoicing system.

Limited Company (Ltd)

Opting for a Limited Company (Ltd) structure offers potential tax advantages and a more formalised business setup. However, this option requires more administrative steps, resulting in a longer setup time. On average, it may take around one month to establish an Ltd. This timeline includes tasks such as registering the company with the appropriate authorities, setting up a business bank account, obtaining relevant licences or permits, and ensuring compliance with legal and tax regulations.

Umbrella Service

Choosing to work under an umbrella company or service provides a quick and convenient way to start freelancing. With this option, you can typically begin working within a matter of days. The setup process involves signing up with the umbrella company, providing necessary documentation, and agreeing to their terms and conditions. Once onboarded, you can start taking on projects and clients immediately, with the umbrella company handling administrative tasks such as invoicing and tax obligations on your behalf.

Partnering up with a Managing Company

Partnering with a managing company like Hightekers offers a hassle-free solution for freelancers looking to smoothen their administrative processes. With Hightekers, you can be up and running as a freelancer in just a few days. Our dedicated coordinators take care of all administrative tasks and formalities on your behalf, allowing you to focus solely on your work and clients.

The timeline for establishing yourself as an IT freelancer varies depending on the chosen business structure. While becoming an independent contractor or working under an umbrella company can be relatively quick, opting for a Limited Company may entail a longer setup process. Partnering with a managing company like Hightekers offers the shortest time frame, ensuring you can start freelancing within days and involves minimal administrative work. 

Which structure suits me best?

Concluding our exploration of the most suitable legal structures for freelancers in the UK, it’s evident that the optimal choice depends largely on your individual circumstances and aspirations. For those just embarking on their freelance journey, operating as a Contractor offers an ideal starting point, though it’s worth noting that you may quickly encounter limitations that necessitate further research and adjustment. 

If the prospect of managing a business does not intimidate you, forming a Limited Company (Ltd) could provide the framework and autonomy you seek for a more established operation. Alternatively, for those who wish to avoid the complexities of creating and managing a Ltd, yet do not require the support or premium services of a traditional employment framework, using an Umbrella Company presents a straightforward solution, particularly if you’re happy working independently without the need for a professional network or community, and have no immediate plans for international expansion. 

Lastly, if you value the conventional benefits associated with entrepreneurship and seek a structure that supports growth and scalability, a Managing Company could align perfectly with your ambitions. Each of these legal forms offers distinct advantages tailored to different stages and styles of freelance work, making it essential to carefully consider which aligns best with your personal and professional goals as you move forward in your freelance career.

Discover the benefits of a managing company for freelancers